Public Prosecutor's Office in Error! Domestic Jurisdiction in Cryptocurrency Fraud Cases

Law enforcement challenge

Crypto fraud cases undoubtedly also present legal challenges for law enforcement authorities. While the draft of the 2024 Criminal Procedure Law Amendment Act brings some welcome clarifications, such as the fact that

• the securing of crypto assets is to be carried out by transferring them to authorities' wallets.
• a release of these assets to victims is also possible during the ongoing investigation.

However, the draft legislation contains no provisions relating to the issue of domestic jurisdiction. Victims still regularly face the discontinuation of preliminary proceedings due to alleged lack of jurisdiction.

Problematic approach of some public prosecutor's offices

Individual public prosecutors base the dismissal of crypto fraud cases on what is (in our opinion) an unsuccessful legal principle of the Prosecutor General's Office when crypto assets have been transferred away from a foreign cryptocurrency exchange. Despite a lack of knowledge regarding the underlying facts of the legal principle, it is referenced without reflection. The victim is rarely given a justification for the dismissal that compares the legal provisions on domestic jurisdiction with the specific circumstances of the individual case.

The legal basis: Sections 62 and 67 of the German Criminal Code (StGB)

The applicability of Austrian criminal law is governed by Sections 62 et seq. of the Criminal Code (StGB). For cases of crypto fraud, Section 62 StGB in conjunction with Section 67 (2) StGB are particularly relevant:

• Section 62 of the Criminal Code (StGB) establishes the principle of territoriality for Austria. It states that Austrian criminal law applies to all offenses committed domestically.
• § 67 Para. 2 of the German Criminal Code defines when an offense is deemed to have been committed domestically:
  1. If the perpetrator acted or should have acted domestically (place of action)
  2. If a result corresponding to the defining characteristics of the offense has occurred wholly or in part in Austria or should have occurred there according to the offender's conception (place of the result)

Connecting factors for Austrian criminal jurisdiction

In cases of crypto fraud, there are several possible jurisdictional connecting factors for Austrian criminal courts:

1. The setting

The place of commission is in Austria if the perpetrator was physically present in Austria at the time the offense was committed. This also applies to offenses committed via the internet. The decisive factor is the actual location of the perpetrator, not the location of a server or the mere accessibility of a website in Austria. If the perpetrators are unknown perpetrators (UP) – as is frequently the case in such instances – the place of commission cannot be used as the determining factor.

2. The place of performance

Determining the place where the crime occurred in crypto fraud cases is complex and partly controversial. In practice, the nature of fraud offenses as multi-act offenses resulting in harm and the importance of intermediate successes for determining jurisdiction are often disregarded.

A distinction must be made here between two fundamental scenarios:

• Transaction of non-custodial wallets„

„Non-custodial wallets (Atomic Wallet, Ledger, Trezor, Exodus Wallet, etc.) are located on a mobile phone or desktop, or as a hardware device, within the sole control of the user. Apart from cases in which the private key or seed phrase is known to third parties (such as known from rip-deal cases through espionage), only the user has control over their assets.

The Higher Regional Court (OLG) of Vienna, in a decision (23 Bs 2/23x of February 16, 2023), held the legal view that 

• in self-harming transactions (the victim performs the transaction themselves), the financial loss occurs at the victim's location at the time the transaction is authorized. If the victim is in Austria at the time of the transaction, domestic jurisdiction is therefore also established.
• for transactions involving third-party harm (where the transactions are carried out by the perpetrators), the location of the wallet or the private key, the location where the victim is staying, and the center of their life are to be used as determining factors.

However, this legal view of the Vienna Higher Regional Court (which generally establishes Austrian jurisdiction) is controversial. For example, it raises the question of how to handle cases in which a victim has stored identical private keys in different wallets in multiple countries. In addition, it contradicts the technical reality of the blockchain, where the actual financial loss occurs within the decentralized structure.

• Transaction via crypto service provider

With crypto service providers (such as Bitpanda, Binance, Kraken, Crypto.com, etc.), the provider stores the crypto assets for the user. In these cases

• the financial loss (= final result) occurs at the registered office of the account-holding crypto service provider. This corresponds to the established case law of the Supreme Court regarding bank accounts.
• the erroneous legal view is sometimes held that domestic jurisdiction only exists if the crypto service provider is domiciled in Austria. However, this only applies to a few providers such as Bitpanda and Coinfinity, but not to the majority of frequently used international crypto exchanges. This legal view is problematic for several reasons:
  1. It creates a significant protection gap for Austrian victims of crypto fraud.
  2. She ignores important intermediate successes that can occur in Austria (such as the deception or disposition of the victim's property, more on that in a moment).
  3. They undoubtedly lead to fraudsters focusing increasingly on Austria and specifically instructing their victims to use foreign cryptocurrency exchanges. The perpetrators operating from abroad could act without the risk of criminal prosecution by the Austrian judiciary.

3. The place of intermediate success

Particularly important and often overlooked by public prosecutors is the fact that intermediate successes also establish Austrian criminal jurisdiction. This is a crucial point that is frequently not sufficiently taken into account in practice.

In the case of fraud (§ 146 StGB), for example, where the victim transfers crypto assets to the perpetrator themselves, the victim's asset disposition can be classified as an intermediate result. If the victim is physically located in Austria when carrying out the transfer, this intermediate result occurs in Austria and thus establishes Austrian criminal jurisdiction.

This also applies to transactions via crypto asset service providers: If the victim is physically located in Austria when instructing the crypto asset service provider, the intermediate success occurs in Austria. This is regardless of whether the crypto asset service provider subsequently executes an „off-chain“ or „on-chain“ transaction.

A practical example for illustration

Let us assume that a victim from Vienna comes across an advertisement on an Austrian newspaper's website on the internet, in which a supposedly Austrian celebrity (frequently seen: Armin Assinger, Armin Wolf, Karl Nehammer, etc.) is promoting a supposedly lucrative investment opportunity. There is no doubt that the perpetrators are specifically targeting Austrian victims.

After the victim discloses their contact information, they are contacted by a supposed financial advisor with an Austrian (spoofed) telephone number, who promises them high returns through investments in a new cryptocurrency. Convinced by the prospects, the victim wants to invest and is guided by the perpetrator

• to open an account on a foreign cryptocurrency exchange (Crypto.com, Binance, Kraken, etc.)
• transferring money from his Austrian bank account first to the account at the foreign cryptocurrency exchange
• to convert the money into Bitcoin or another cryptocurrency and transfer it to an address provided by the perpetrators.

If one were to follow the legal view of many public prosecutors, according to which the only relevant point of reference for jurisdiction is the location of the cryptocurrency exchange used, from which the assets were ultimately transferred into the perpetrators' sphere, Austrian law enforcement would not have jurisdiction. The probability that a foreign law enforcement agency would declare itself competent for this case is vanishingly small. This would result in victims being denied any chance of justice and perpetrators having to fear no prosecution of their acts by law enforcement agencies. An intolerable outcome.

From a legally correct perspective, the jurisdiction of Austrian criminal prosecution authorities must undoubtedly be affirmed due to the multiple intermediate successes that occurred in Austria. In our example, at least three intermediate successes have occurred:

1. The victim was in Austria when they were deceived (initial intermediate success: creation of error).
2. The first transfer was made from an Austrian bank account and originated from Austria (second intermediate success: disposition of assets)
3. The transaction away from the foreign crypto exchange was also initiated from Austria (third intermediate success: disposition of assets)

The fact that the crypto exchange is based abroad or that the perpetrators may not have operated in Austria is irrelevant for establishing domestic jurisdiction.

Conclusion, Request, and Recommendation for Action

The current practice of the public prosecutor's offices creates a dangerous protection gap for Austrian victims of crypto fraud. It is urgently necessary for law enforcement agencies to rethink their approach and fully take the legal realities into account.

For those affected and their representatives, it is important to know:

1. The place of the intermediate success (e.g., the victim's deception or asset disposition) can establish Austrian criminal jurisdiction.
2. This applies both to direct crypto transactions and to transactions via crypto service providers.
3. What is decisive is the physical location of the victim at the time of the transfer or the deceptive act.

As lawyers, prosecutors, and judges, we are called upon to understand these complex relationships and apply them correctly. Only in this way can we effectively combat the growing problem of crypto fraud and uphold the rule of law in the digital age as well.

If you are affected by crypto fraud, insist on your right for the case to be prosecuted in Austria, provided you were deceived here or made transfers from here. Do not be too quick to accept a rejection if a public prosecutor's office denies jurisdiction. 

For further information and individual consultation, we are at your disposal at any time under office@atb.law or by phone at 01 39 12345 available.